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What is a Credit Score?

From the moment you begin your financial footprint, your information and history has been collected and stored by credit bureaus.  Today, there are three major credit bureaus:  Equifax, TransUnion and Experian.  The information they collect is analyzed, dissected and translated into your Credit Score.

Contrary to popular belief, information on credit scores is not always common knowledge. A lot of people do not necessarily know what their credit score is and how the credit score is calculated. This is where this bit of information will come in quite handy. You need to understand your credit score and how it was calculated.

A credit score consists of three digits that have been created by a mathematical formula based on information obtained from your credit report. What your credit score does is predict risk, specifically, the likelihood you will become delinquent on your credit obligations in the next year.  There are many models that do credit scoring but the most popular is the Fair Isaac Corporation, FICO, credit score. More than ninety percent of companies in the US use the FICO score to make their lending decisions. The scores range from 300 to 850.  The higher your credit score, the lower your risk factor.

What does your credit score consist of?
The information that is gained from your credit report will be placed in five main categories and will be used to produce your credit score. The scoring model used will weigh some of the factors more heavily than some, including payment history and debt owed. Your account payment information, inclusive of delinquencies and public records, makes up your payment history and carries a weight of 35 percent. The amount you owe on accounts is weighed at 30 percent. Fifteen percent is accredited to the length of your credit history, which tells how long the accounts have been open and the last account activity. The remaining 20 percent are equally shared between the types of accounts used and the new accounts that you are pursuing.

Companies other than lenders may request to review your credit report.  Some of these include current employers, prospective employers, licensing agencies and potential landlords.  With so much riding on your credit score, it is important to maintain a good score, as well as take steps to ensure its accuracy.  At allU.S. Credit Union, we recommend an annual credit report review to ensure accuracy and to check for identity theft.

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